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Continental: Cost Cuts Ahead of Expectations, Returns Improving
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Continental Resources, Inc. announced first quarter 2015 operating and financial results.
Continental reported a net loss of $132.0 million, or $0.36 per diluted share, for the first quarter of 2015. Adjusted net loss for the first quarter of 2015 was $33.8 million, or $0.09 per diluted share.
Harold Hamm, Chairman and Chief Executive Officer, commented: "Our teams have done an outstanding job making the necessary adjustments to achieve our 2015 goals of aligning capital expenditures with cash flow by mid-year, reduce expenses across the board, and maximize returns on every dollar we spend. We're proud of Continental's early 2015 performance and discipline.
"Looking ahead, U.S. oil production is starting to roll over, as anticipated. Given the depth and quality of our assets, Continental is well-positioned to resume growing cash flow and earnings when the oil price environment improves. We remain encouraged by the outlook for the second half of the year and for 2016."
For a detailed update on Continental's 1Q operations, click here.
Improving Returns from Declining Costs
Continental's drilling and completion costs for most operated wells have declined approximately 15% since the end of 2014, primarily due to lower service costs. This is ahead of expectations. The Company's estimated drilling and completion costs for operated wells in the Bakken have decreased to $8.2 million per well, based on a two-mile lateral with an enhanced completion design, compared with $9.6 million per well at year-end 2014. Estimated drilling and completion costs for operated Woodford wells in the South Central Oklahoma Oil Province (SCOOP) have decreased to $10.4 million, based on a 7,500-foot lateral, compared with $12.2 million per well at year-end 2014.
Looking forward, the Company now expects to realize service cost reductions of up to 20% by mid-year and further savings from drilling and completion efficiencies. As an example, Continental recently set a new Company record in the Bakken by drilling the two-mile lateral portion of a well in three days, nearly four days faster than its average time to drill a lateral in the basin. This same well was drilled from spud to total depth in 13 days, nearly five days faster than the Company's average spud-to-TD time in the Bakken. So far this year, Continental has drilled eight wells to total depth in 14 days or less, raising the Company's technical bar as overall drilling efficiencies continue to improve.
Production
First quarter 2015 net production totaled 18.6 million barrels of oil equivalent (Boe), or 206,829 Boe per day, a sequential increase of 7% from fourth quarter 2014 and 36% higher than first quarter 2014. Total net production for the first quarter included 143,511 barrels of oil (Bo) per day (69% of production) and 379.9 million cubic feet (MMcf) of natural gas per day (31% of production). In first quarter 2015, sales volumes totaled 18.4 million Boe, or 204,547 Boe per day, which was below production for the quarter.
The following table provides the Company's average daily production by region.
For a detailed update on Continental's 1Q operations, click here.
Financial Update and Guidance
In first quarter 2015, Continental's average realized sales price excluding the effects of derivative positions was $38.56 per Bo and $2.70 per Mcf, or $31.65 per Boe. Settlements of matured commodity derivative positions generated a $0.69 gain per Mcf of natural gas, resulting in a net gain on matured derivatives of $23.4 million, or $1.27 per Boe, for the first quarter of 2015. Based on realizations without the effect of derivatives, the Company's first quarter 2015 oil differential was $10.01 per barrel below the NYMEX daily average for the period. The realized natural gas price differential for first quarter 2015 was a negative $0.28 per Mcf.
All operating costs were in line with or better than annual guidance for first quarter 2015. Production expense per Boe was $5.05, a decrease of $0.26 per Boe from fourth quarter 2014. Other select operating costs and expenses for first quarter 2015 included production taxes of 8.2% on oil and natural gas sales; depreciation, depletion and amortization (DD&A) expense of $21.00 per Boe; cash general and administrative (G&A) expense of $1.85 per Boe; and equity compensation expense of $0.61 per Boe.
Non-acquisition capital expenditures for first quarter 2015 totaled approximately $984 million, which was $57 million, or 5%, below budget for the quarter. Total capital expenditures for the quarter included $914 million in exploration and development drilling, $29 million in leasehold and seismic, and $41 million in workovers, recompletions and other. In addition, acquisition capital expenditures totaled approximately $37 million for first quarter 2015.
As of March 31, 2015, Continental's balance sheet included approximately $48 million in cash and cash equivalents, and $6.8 billion in long-term debt, including $955 million of borrowings against the Company's credit facility. In February 2015, the Company increased the commitments under its existing credit facility to $2.5 billion, providing incremental liquidity.
John Hart, Chief Financial Officer, said: "As we discussed on our February earnings call, Continental is moving toward balancing cash flow and capital expenditures by mid-year. We did an excellent job managing both operating costs and capital expenditures with a disciplined approach during the first quarter. We have ample liquidity with our expanded revolver to support operations through the remainder of the year. Our expectation is for cash flow to improve as world crude oil supply and demand rebalance later this year, which should be accompanied by strengthening oil prices."
Continental's 2015 guidance remains unchanged as disclosed on February 24, 2015. Due to its strong operating performance and the industry's commodity price volatility, the Company may review its 2015 guidance with the announcement of its second quarter results in early August 2015.